New Regulations for the New Year

Senior Editor

U.S. regulators spent much of the past year writing new rules. Next year, corporate executives will have to deal with the fruits of those labors—which will affect everything from the tax rate on dividends to how they manage their supply chains.

John S. Dykes

Uncertainty may be their biggest challenge, however, as Washington searches for a tax-and-spending compromise to avoid the so-called fiscal cliff.

“We need to have certainty so that we can plan,” Ellen Kullman, chief executive of DuPont Co., said at a recent meeting of the National Association of Corporate Directors, adding that her company is pulling back on its 2013 spending plans while it waits for the outcome of the political debate.

The re-election of President Barack Obama, meanwhile, means that companies can start preparing for new requirements to provide health coverage to all workers by 2014 or face penalties. “The future for health-care reform is pretty secure now,” says Tracy Watts, a partner at benefits consulting firm Mercer.

And while many of the 300 market regulations required by the Dodd-Frank financial law have been written, the regulators overseeing them are set to change. Since Securities and Exchange Commission Chairman Mary Schapiro said earlier this month that she would step down from her post, several of her top lieutenants have announced their exits.

Here are some of the most important rule changes companies can expect in 2013:

Taxes

Depending on the outcome of the fiscal-cliff debate, the tax rate on dividends, now 15%, is set to rise to as high as 43.4% next year. To prepare for that prospect, dozens of companies have issued accelerated or special dividends lately .

Beyond that, companies are waiting to hear the fate of proposals to lower the U.S. corporate-tax rate and whether some key deductions that expired last year will get reinstated in any fiscal-cliff deal. They include a tax credit for research and experimentation, a tax exemption for dividends paid to a U.S. company by a foreign company it controls and a measure that let companies defer taxes on some overseas interest income.

Those rules, “would potentially have a significant effect on corporate financial statements if they are all reinstated in the fourth quarter,” said Hank Gutman, a former chief of staff for the congressional Joint Committee on Taxation, and a director at accounting firm KPMG LLP.

Multinational companies that use transfer pricing when exchanging goods, services and intangible assets between foreign affiliates will also face changes next year. Tax authorities in the Netherlands are under pressure to alter their approach to profits stemming from intellectual property, and a new finance act in India will change how transfer pricing is used in domestic transactions, according to consultants from international tax adviser Taxand.

Supply Chain

As part of the Dodd-Frank Act, companies will need to determine whether their products contain certain minerals from the Democratic Republic of the Congo that have been blamed for fueling violence in the region. The metals include tantalum, tin, tungsten and gold. Companies won’t need to file their first “conflict minerals” report with regulators until 2014, but the reporting period begins Jan. 1 of next year. A legal challenge by the National Association of Manufacturers and U.S. Chamber of Commerce could potentially delay the rule.

Companies are also facing new disclosure requirements in February related to business dealings in Iran. A recent law requires public companies to disclose to U.S. securities regulators whether they or their affiliates are directly or indirectly engaged in business in Iran. Companies will have to scrutinize their subsidiaries, joint ventures, business affiliates and even board members to look for exposure, according to Brian Lane, a corporate attorney at Gibson Dunn & Crutcher LLP.

Capital

Corporate treasurers may have to look for a new place to stow their cash if Congress lets the Federal Deposit Insurance Corp.’s unlimited guarantee on noninterest-bearing corporate bank deposits expire at year end, as scheduled. Companies have socked away more than $1 trillion in those accounts as investment yields remain paltry and safety continues to be their primary concern.

The Senate plans to vote Tuesday on a measure to extend the FDIC’s blanket guarantee. Large banks are fighting the extension, arguing that the unlimited guarantee implies that the banking system isn’t stable.

Meanwhile, companies seeking to raise capital are waiting for the SEC to finalize rules that, as required by the Jumpstart Our Business Startups Act, would lift the decades-old ban against advertising securities offerings to ordinary investors. The SEC proposed new securities-marketing rules in August.

Accounting

U.S. and international accounting-rule makers aim to complete joint rules next year that would align their revenue-recognition standards. But the process could be slowed, as the accounting boards face pressure to determine whether differences in their revenue-recognition rules led to Hewlett-Packard Co.’s allegations last month that U.K.-based Autonomy Corp. inflated its financial results before it was acquired by the U.S. computer maker. Autonomy’s former chief executive said H-P’s allegations were “utterly wrong.”

A new SEC chairman also could signal whether the U.S. might move closer to adopting International Financial Reporting Standards. A much-anticipated report from the agency’s staff over the summer offered little direction on the matter.

In addition, the 20-year-old framework used by most public companies to guide their internal control processes for financial reporting is set to get its first major overhaul in the first quarter of 2013 by the Committee of Sponsoring Organizations of the Treadway Commission, an alliance of accounting and finance groups.

Comments (1 of 1)

This barage of new regulations has essentially two purposes: 1) collect money for the government without raising taxes, and 2) create jobs for lawyers.

Why go through the agony of trying to push thru a $1 trillion tax increase when you can just pass a million laws that do such things as mandate 30 lb weight paper instead of 20 lb, and then sue the violators for millions of dollars when they don't comply?

Nearly across the board, mid-market executives are hiring new employees, buying new technology solutions, acquiring businesses to reach new markets and preparing IPOs, according to a Deloitte survey of more than 500 mid-market executives. But companies are running up against a number of constraints as they seek to expand, particularly in acquiring and retaining skilled talent.